Managing the Supply Chain

As top-level managers scramble to reengineer their organizations in the face of mounting competitive pressures, they are including one of the most important parts of the product delivery process: the supply chain. More and more businesses are realizing how studying and streamlining the way products actually get to customers can make a large impact on any manufacturer's bottom line.

The typical supply chain encompasses hundreds of miles, as well as weeks—or months—of staff time. Given this reality, it's easy to see how cutting just a few miles, days, or steps out of this process could reap significant profits for a company. According to a Fortune article, Compaq Computer estimates that it lost the profit from $500 million to $1 billion in sales in 1993 simply because it couldn't get its PCs to customers where and when they were needed—because its supply chain wasn't being managed effectively.

Obviously, Compaq needed to re-examine and improve this complex chain. But, in fact, a company doesn't need to see a multi-million-dollar potential gain in order to justify taking a close look at its supply chain. Any company can see real, immediate benefits from ensuring that its products take the shortest, fastest, and most cost-effective route to the marketplace—and, at the same time, gain an understanding of the factors behind successful supply chain management.

No matter how forward-looking and insightful an organization's top-level strategy is, and no matter how closely it's tied to real-world customer needs, customer satisfaction—and company profitability—won't be fully achieved unless the entire supply chain is working at top efficiency. From sales management through product development and physical distribution, all functions need to work in concert toward common goals.

The chart below demonstrates how pervasive the supply chain issue is. The supply chain literally covers all functions within an organization; focusing on just one part of it shortchanges performance. What is needed is a set of tools and a process to gain a view of the entire supply chain.

But how should an organization begin, given the distance, time, and complex data involved in the supply process? GMT believes that information technology tools provide an answer, because they make the gathering and managing of information about the supply process both systematic and quantifiable. But GMT also believes that the process must begin with a look at the entire business—not just the supply chain—so that any supply improvements are customized to the strategic and financial goals of the business.

GMT's supply chain improvement process begins with an initial diagnostic to determine the key indicators of strategic and operations success for the organization. The process includes interviews with key customers and with personnel throughout the organization, as well as the gathering of data on past performance, new product offerings, industry projections, competitor activity, manufacturing costs, production schedules, etc. Key supply chain trade-offs for the business are identified, as well as the measures to evaluate these trade-offs.

A computer model is developed which demonstrates what supply chain indicators drive operations success for the business—whether they're productivity improvement, cycle-time reduction, capacity expansion, or product mix. The model incorporates information from every step of the supply chain, as well as top-level strategic plan performance targets.

As this model is developed, GMT's process helps managers understand the implications—and key trade-offs—of various performance improvement initiatives. For example, if the business wants to reduce overall cycle time, what requirements should be placed on suppliers? What are the key investments in capacity?

In short, GMT's supply chain process highlights the key "operational levers" behind business success, by demonstrating the cause-and-effect relationships between operations improvement initiatives and overall business performance.

In effect, the process helps to reshape and redefine the way senior managers think about their organization's operating performance by modeling the myriad factors and relationships responsible for that performance.

GMT then helps the organization form crossfunctional teams and implement the critical initiatives that will lead to supply chain performance improvement.

Finally, GMT's process helps the organization define a performance measurement system that, like the strategic plan and operations improvement initiatives, is custom-tailored to the particulars of the organization. 

Compaq's billion-dollar supply chain problems should be enough to demonstrate the value of supply chain improvements. GMT's process not only streamlines the supply chain of an organization—helping it to achieve its specific performance targets—but also ensures that people at every level are aware of top-level goals, and that team initiatives are working with a shared purpose.

GMT's business-wide overview—as well as its use of a team process and modeling tools—makes its approach unique, and amplifies the benefits for any company interested in more effectively managing its supply chain. This process offers a fact-based perspective on business realities, as well as a supply chain working at top efficiency—a combination sure to bring significant competitive and bottom-line benefits.